As Lululemon recalls too-sheer black yoga pants, its stock sinks

Major brands including Ikea, KitchenAid, Kit Kat and Urban Outfitters took an uncomfortable trip through the public opinion wringer in 2012. Companies ran advertisements referencing rape, offered discounts connected to devastating storms and employed mascots indirectly linked to child pornography. They misused social media, made controversial omissions and, on occasion, tried too hard to be funny. Here are some of the worst marketing and advertising decisions of the year. (By Tiffany Hsu)

Tiffany Hsu

Lululemon Athletica Inc.’s problem isn’t just that a batch of its black yoga pants were made too sheer and had to be recalled – the popular retailer is now downgrading its financial predictions and watching its stock do a downward dog.

The Vancouver, B.C., company said late Monday that it pulled the women’s pants from its stores and e-commerce sites over the weekend after learning that the material was too revealing. The Luon fabric is produced in Vietnam and Taiwan and made with a mix of nylon and Lycra spandex fibers.

In a lengthy FAQ posted on its website, the chain said it was still investigating how a batch of too-skimpy pants was allowed to reach stores in early March. Lululemon hasn’t changed its manufacturers or ingredient quality since 2004, it said.

Or, in the company’s words: “The ingredients, weight and longevity qualities of the women’s black Luon bottoms remain the same but the coverage does not, resulting in a level of sheerness in some of our women’s black Luon bottoms that fall short of our very high standards.”

Lululemon is now offering affected customers full refunds or exchanges while also warning of an impending shortage of black yoga pants. The recalled apparel makes up 17% of the women’s pants and crop pants Lululemon sells in stores.

But it’s more than practitioners' poses being affected – Lululemon said the “issue will have a significant impact” on its financials.

The company lowered its expectations for an 11% increase in same-store sales and revenue between $350 million and $355 million for its first fiscal quarter. Now, Lululemon is projecting a 5% to 8% same-store sales range and revenue between $333 million and $343 million.

The company will unveil its fourth quarter and full-year earnings on Thursday. But already, analyst Sam Poser of Sterne, Agee & Leach downgraded Lululemon’s shares to a neutral rating from buy, telling investors to back off until quality-control concerns are alleviated.

Lululemon had been riding a recent surge in demand for women’s athletic wear, along with competitors such as Gap Inc.’s Athleta, Under Armour Inc. and even mass-market retailers such as Forever 21 and Victoria’s Secret.

In early morning trading, Lululemon stock fell as much as 5.9%; as of 9:15 PDT, it was down $3.60, or 5.5%, to $62.30.